I am still unhappy, unsatisfied, and unclear about this iCloud stuff. Call me a skeptic.

OK... today for the first time I see a message on my iPhone lock screen that says, "This iPhone has not been backed up for 5 weeks. Backup occurs when this phone is locked and connected to WiFi."

Well... that's strange. I have made a practice of making a backup of my iPhone to my MacBook Pro... and then changing the radio button to "Backup to iCloud" and syncing again. I do this routinely every day. Moreover, the phone is locked and connected to WiFi every evening every day at home. I figured that those things backed up on my local computer would be backed up. And those things that CAN ONLY be backed up via iCloud, notably and annoyingly Contacts, would be backed up to the Cloud.

Alright, I thought, let's go see what the settings say in the iPhone. So I went to my iPhone settings and looked under iCloud and see that the screen for Backup says that iCloud backup is turned OFF. That's strange. I thought I was backing up to iCloud by clicking the aforementioned button in iTunes on the MacBook Pro. Not so?

I went to turn ON iCloud Backup on the iPhone and get a message that says, "Start iCloud Backup. Your iPhone will no longer back up to your computer automatically when you sync with iTunes."

Now THAT doesn't sound right, does it? Shouldn't the user be able to set where you backup to? And shouldn't those very noticeable buttons in iTunes determine whether it's sync'ed to the computer or to the cloud? Who is in control here? I don't like this. So if I turn on iCloud Backup on the iPhone does that mean it OVER RIDES my settings in iTunes and no longer backs up to my computer???

Folks that like this Cloud arrangement are either not paying attention or they don't care what's going on.

I could have sworn that I've had both iCloud backup set to On on my iPhone and This computer set on my iMac. But maybe not, as I can easily back up to my iMac, either wired or wirelessly, and have essentially ignored iCloud backup.

Note that if you back up to iCloud, only certain things will be backed up. I've had to switch iPhones a couple of times, and restoring from the cloud, while sort of convenient if you're at an Apple Store, just gets you the bare essentials, excluding a lot of stuff. They'll warn you not to leave the store because any interruption in WiFi can interrupt the restore. And I don't think you can restore from iCloud even via LTE, you must have WiFi.

If you back up to a Mac, you can do a complete restore (to any iPhone) and everything will be there, with the possible exception of having to sign in to a few things. If you encrypt the backup to your Mac, you'll even save all the passwords. iTunes also saves some past backups, and Time Machine backs up your backups.

Using iCloud Backup doesn't disable iTunes Backup completely, it just turns off Automatic Backups via iTunes. You can trigger a manual iTunes Backup yourself whenever you want to create a new one.

Although backing up your iOS device to iCloud is easy and intuitive, it simply isn’t enough for most users. Restoration of all the data on your iPhone, iPod Touch or iPad from the cloud is slow and time-consuming and restoration is limited to your most recent backup. However, backing up via iTunes lets you have your iDevice backups saved with Time Machine, allowing multiple restore points. From the iTunes interface it appears you have to choose either local or iCloud backup, but that’s not true. You can do both!
Even if iTunes says it’s backing up your iPhone or iPad to iCloud, all you have to do when your device is connected is right-click on it in iTunes and choose “Backup.” It’s that easy. Now the state of your iPhone is backed up locally via iTunes as well as continuing to back up via iCloud.

Manual Backup is available even when your phone is not wired to USB on the Mac.

Shouldn't the user be able to set where you backup to? And shouldn't those very noticeable buttons in iTunes determine whether it's sync'ed to the computer or to the cloud? Who is in control here? I don't like this. So if I turn on iCloud Backup on the iPhone does that mean it OVER RIDES my settings in iTunes and no longer backs up to my computer???

The user can set where to back up. And as explained above, you can back up both places, just not automatically to both.
If you switch iCloud backup on on your iPhone, iTunes reflects that change almost immediately. iTunes then will not automatically back up to the Mac.
You can watch it change before your very eyes, if you make the change on the iPhone while at your Mac. Think of your iPhone and iTunes being like iCal or Reminders. This setting is always in sync.
I think it would be nice if the user were able to choose iCloud backup plus automatic full backup to the Mac at each sync.

There's another issue here to keep in mind.
iCloud backup is analogous to Time Machine in that you set it and forget it.
iTunes backup, even if the automatic backup choice is checked, only occurs when you sync your phone.

The only value of an iPhone backup is in the case that you need to restore the phone. I've only done that three times: once when my iPhone had to be restored because of a malfunction and twice when migrating to new iPhones.
I suppose there are ways to extract data from an iPhone backup, at least in forensics kits. But it's not at all like Time Machine, where you can resurrect a single file.
And remember that any files stored on iCloud (or Dropbox) are still there even if your phone malfunctions.

Firstly, the choice of how an iDevice backs up can be selected from either the device (as you have discovered), OR from within iTunes ... so in that sense changing one setting will override the other. We have to remember that not all iDevice owners also own a computer with iTunes installed. My opinion is that if you do regularly sync using iTunes with backup turned on, that is sufficient backup ... assuming that you regularly back up the content of your computer.

Secondly, an iDevice backup only backs up ...

Your Camera Roll
Photo albums you’ve created on the iOS device (but not those synced from your computer, because they’re already “backed up” on that computer)
Documents and settings for all your apps
All account data and iOS settings (including those configured in the Settings app, and your app and folder organization)
Conversations in the Messages app

Storage of your iCloud synced contacts, calendars, reminders, emails, notes, bookmarks, and any documents handled by Documents in the Cloud are not considered part of an iCloud Backup, and therefore don’t count toward your iCloud storage quota. Info regarding purchased books, music, and apps is also kept in iCloud, but does not count towards your storage quota.

I went into iTunes and selected the button "Back up to iCloud." Then I clicked the button to the right of the backup window that said "Back up Now." iTunes cranked and churned for a few moments and seemed to indicate that synchronizing was taking place. But I still see this indication that my iPhone has not been backed up to the Cloud since November! This is ridiculous. Or if not ridiculous, then ridiculously complicated... if there is more to just getting it to work.

iCloud Backup provides an easy and reliable backup solution for users who want to back up their iOS devices wirelessly and automatically without tethering to a computer. iCloud Backup is best for you if:

You prefer that iCloud take care of backups for you automatically when your device is connected to Wi-Fi and power.

The notice on the iPhone is clearer (again, emphasis added):

Automatically back up your camera roll, accounts, documents, and settings when this iPhone is plugged in, locked, and connected to WiFi.

So my iPhone backed up last sometime after I plugged it in last night. I charge my iPhone every night in my house.

If you're concerned that you might have to restore your iPhone when out of contact with your Mac--maybe because you travel a lot--the best bet seems to be:

Turn iCloud backup on. (If it's on, you can also back up manually to iCloud from the phone.)
Manually backup to your Mac whenever you want.

Remember that--without a third-party app--iPhone backup does not let you restore any particular data or app, like Time Machine. It just allows you to restore your iPhone whole hog if something goes terribly wrong, or if you are switching to a new iPhone.

(Also, I'd be leery of any app offering this. I'd want to know for sure that it's legit and is not phoning home. A malicious app of this type would be ideal for harvesting information from iPhone.)

"Design is not just what it looks like and feels like. Design is how it works."
Steve Jobs

Stephen,
I don't understand your reply with emphasis added or without emphasis added. My iPhone is connected by WiFi and locked while it charges every night at my house. But yet it has not backed up to the Cloud since November. Do I have to go into iPhone settings and select iCloud --> Storage & Backup --> Backup, and click that button to Turn On iCloud Backup? IF SO.... IF SO..... the message appears that I reported in the first message of this thread;

"Start iCloud Backup
Your iPhone will no longer back up to your computer automatically when you sync with iTunes."

That was my original question, still unanswered. Do I want to do that??? This is GIBBERISH on the part of the people who programmed this and invented this interface. My MAIN CONCERN is that I have as complete a backup as possible on my local computer. That is my chief concern. Understanding that Contacts (for whatever stupid reason) CANNOT be backed up to your local computer using a USB cable and performing a sync, I need the Cloud. I think this is infuriating and stupid on Apple's part to PREVENT you syncing to your computer's Contacts address book and REQUIRING you to use the Cloud. But just for that reason I need to have the Cloud backup some time.

I think what you are missing is the understanding that the radio buttons in your Backup screenshot only select how AUTOMATIC backups are to be done. Either once a day to iCloud (mainly for those folks without a computer), or whenever you sync your iPhone to your Mac using the USB cable.

The "Backup Now" button on the right side is used to initiate a MANUAL backup to the Mac ... regardless of how the radio buttons are set. I see little reason for you to use that button, as long as you are doing nightly syncs. Your contact info on both devices will be identical because of the syncing, and therefore you will have a backup.

As mentioned in a previous post, neither method of backup actually backs up your Contacts ... but syncing, regardless of method, will.

So, relax and enjoy.

P.S. Let me know if you want to borrow my "Take Control of iCloud v2.0" I have it both PDF and EPUB formats. Take Control Books allows short term "borrowing" to consider whether or not to make a purchase.

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An old Norse adage: Change is inevitable, except from a vending machine.

"Start iCloud Backup
Your iPhone will no longer back up to your computer automatically when you sync with iTunes."

Jerry, this is correct. If you turn iCloud backup on either in iTunes or on your iPhone, automatic, and only automatic, backup to your Mac will be turned off. You can still do a manual full backup to your Mac.

If you turn iCloud backup off, either in iTunes or on your iPhone, your iPhone will back up each time it syncs to iTunes. You can sync in several different ways. The only sync that's automatic is when the iPhone is plugged into power and is on the same WiFi network and when your Mac is awake. (I'm pretty sure the phone will not wake a sleeping Mac to sync, but I've never checked.) In addition, if you plug your iPhone into your Mac with its USB cord, and iCloud backup is off, it'll backup then sync automatically. (All this depends on settings.)

I guess that your phone has not backed up to iCloud for a long time because you have iCloud backup turned off.

"Start iCloud Backup
Your iPhone will no longer back up to your computer automatically when you sync with iTunes."

That was my original question, still unanswered. Do I want to do that???

This isn't exactly trivial to answer, but I'll try.

Yes, if you need or want a partial backup to iCloud because you might want to restore your iPhone when out of reach of your Mac. Or if you just feel better with that backup to iCloud. You'll then want to manually back up to your Mac whenever you can conveniently. (Your iPhone does not need to be wired to the Mac to do this.)

No, if you want automatic backup to your Mac whenever it's plugged into power, is on the same WiFi network as your Mac and your Mac is awake.
No if you're worried about someone stealing data from iCloud.

In Mavericks, Contacts and Calendar only back up by way of iCloud. If you have an iCloud account, then Contacts and Calendar are in sync on all your devices using that iCloud account. (I've seen other complaints about the loss of USB syncing. You can send a complaint to Apple Feedback.)

iCloud back up of the iPhone only does one thing for you. It backs up a bare-bones iPhone restore image so that you can restore the iPhone, sort of.

Backup of Contacts, Calendar, Reminders, etc. is entirely separate. This is done automatically, almost instantly, after any change in iCloud or any devices that are using the same iCloud account.
So, for example, if I change a Contacts entry on my iPhone, it's changed on my iPhone, on Karen's iPhone, on my iPad, in iCloud (accessed from a browser), on my iMac, on Karen's MacBook Pro, on Karen's Mac mini in her office, all in the blink of an eye*. We use this extensively, and it just works.
(The only time we've been caught short by this excellent system is when I once told Siri to remind me to take the bread out of the oven in 10 minutes. Karen got that reminder at work on her iPhone, and was momentarily surprised.)

All three of our Macs are backed up by Time Machine (to a total of three separate hard drives), and iCloud itself has multiple redundant backups. So there's essentially no way to lose Contacts data, even if I never back up my iPhone anywhere. (The same is true of any iWork data when the file is stored in iCloud. The same is true, by a different mechanism, of anything stored on Dropbox. Of course, if you make a change and the device you make the change on is immediately destroyed or crashes, the change will never propagate.)

* "Instantly" is perhaps oversell. I've seen occasions where I get to Safeway and have to drum my fingers on my iPhone for a while before it shows the shopping list I just changed at home with the iPad. Even then, the data essentially can't be lost. You can force refresh Reminders by refreshing Calendar.

"Design is not just what it looks like and feels like. Design is how it works."
Steve Jobs

I just helped someone through iCloud backup issues that were similar to this.

First off, I am able to do a complete backup and restore phones with all of my content. I get a new phone just about every year, and back up solely to iCloud. When I do a restore from iCould, ALL of my content is on the new phone exactly as it was on the old phone... Contacts, calendar, messages, emails, apps, photos, settings, etc are all on the new device exactly as they were on the old one. The only thing that I have seen lost is some data on third party apps where the developer didn't set the app up to backup on iCloud, but I have seen less of that as iCloud has become more popular.

As far as not backing up goes, there are a couple things that can cause that. When you have iCloud backup turned off on iTunes, that seems to totally stop an iCloud backup from happening in some cases. It seems like it's designed to be an either/or type of system as far as where your backups are kept. I have been able to make iCloud backups happen for people by turning iCloud backup on in iTunes and then doing a manual iCloud backup.

Another interesting thing I recently learned is that there are some third party app that will cause the iCloud backup to fail for some reason. You can go into your iCloud settings on the phone and select the specific apps you want backed up, so I went into the settings and turned off all of the third party apps and did a backup that way, and then turned them back on a few at a time and tried to figure out which of them was causing it.

There are definitely a few bugs in the system still, but I have gone wholesale to iCloud and managed to not lose anything over sever changes of devices.